Intraday Variation in the Bid-Ask Spread: Evidence after the Market Reform

Chung, Kee H.; Zhao, Xin

doi:10.2139/ssrn.298521

Download This Paper

Open PDF in Browser

Add Paper to My Library

Intraday Variation in the Bid-Ask Spread: Evidence after the Market Reform

25 Pages Posted: 6 Feb 2002

See all articles by Kee H. Chung

Kee H. Chung

State University of New York at Buffalo - School of Management

Xin Zhao

Pennsylvania State University (Erie) - The Behrend College

There are 2 versions of this paper

Abstract

In this article we show that intraday variation in spreads for Nasdaq-listed stocks has converged to intraday variation in spreads for NYSE-listed stocks after the implementation of the new order handling rules. We attribute this convergence to the Limit Order Display Rule, which requires that limit orders be displayed in Nasdaq best bid and offer (BBO) when they are better than quotes posted by market makers. Our findings suggest that the different patterns of intraday spreads between NYSE and Nasdaq stock reported in prior studies can largely be attributed to the different treatments of limit orders between the NYSE and Nasdaq before the market reform.

Keywords: Nasdaq, order handling rules, intraday pattern, spreads

JEL Classification: G14

Suggested Citation: Suggested Citation

Chung, Kee H. and Zhao, Xin Jessica, Intraday Variation in the Bid-Ask Spread: Evidence after the Market Reform. Available at SSRN: https://ssrn.com/abstract=298521 or http://dx.doi.org/10.2139/ssrn.298521